Contracts for Difference (CfD)

DEFINITION: A private law contract between a low-carbon electricity generator and the Government. The generator party is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low-carbon technology – and the ‘reference price’– a measure of the average market price for electricity in the UK market. CfD provides long-term price security to renewable energy providers, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers.